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Business angels face greater demands

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New research has suggested that business angels are being asked to invest their money for longer and in larger projects.

A study carried out for the Business Department found that more entrepreneurs are turning to private investors as venture capitalists shift their attention to bigger companies.

As a result, business angels are having to wait for longer before they can exit projects and are having to put more funds into follow-up investments.

With the size of investment deals on the increase, business angels are showing a trend towards organised investment groups, the study said.

A private investor may usually fund an enterprise with an average sum of about £200,000; syndicated business angel investments tend to be as high as £500,000.

Professor Colin Mason of Strathclyde University, the author of the study, said that start-up and early stage funding had become more complicated: “Angels are occupying several steps on the funding escalator. They’ve moved up a couple of steps and left a gap at the very bottom. Angels need deeper pockets and more patience.”

Using figures supplied by the British Business Angels Association and the national association for business angels in Scotland, Professor Mason’s research indicated that the UK angel market is worth in the region of £426 million.

However, the study concluded that more work was needed to investigate properly the effect on early stage funding of those investors who operate on an individual basis and outside organised groups of business angels.